Brazil Interest Rate

The Central Bank of Brazil raised its Selic rate by 100 bps to 13.25% in its January 2025 meeting, with further tightening expected if inflation risks persist, particularly due to external and domestic challenges. The external environment remains difficult, with ongoing uncertainty surrounding the U.S. economic outlook and the Fed's policy stance. Domestically, economic activity and labor market indicators remain dynamic, though headline and core inflation measures continue to exceed target levels. Inflation expectations for 2025 and 2026 have risen significantly to 5.5% and 4.2%, respectively. The Committee highlighted upward risks, including the potential for unanchored inflation expectations, resilient services inflation, and a more depreciated exchange rate, while noting downside risks related to a sharper-than-expected slowdown in domestic economic activity.